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introducing

Supply Chain Management

Mana

Prof. M

Operations M

Management Development Imks

[email protected]

http://mks507.vistapanel.net

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01. Titanic: What Went Wrong?

02. INTEL: Using Innovation to Create Competitive Advantage

03. McDonalds Food Supply Chain

04. Wal-Marts Supply Chain Practices

05. Procter & Gamble: Using Agent Based Model ing & RFID

06. IDEO: The Power of Design

07. FedEx: Delivering the Goods

08. Mumbai Dabbawallah

09. Procurement at Microsoft

10. NOKIA INDIA: Battery Recall Logistics

11. Dells Supply Chain Strategies

12. Postponement Strategies

13. Historical Examples of Military Logistics

14. Reliance Fresh Stores in Food Retailing

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Global : Logistics Industry Scenario The logistics industry is valued at US$ 3.5 trillion.

The U.S., which contributes to over 25% of the global industry value, spends closon logistic services.

The sector currently employs over 40 million people in the world

Countries Log

India/China

U.S

Europe

Japan

Technology19%

Retail17%

Industrial19%

Health Care4%

Consumer23%

Chemical4%

Automotive10%

Others4%

Global Industry Verticals - Logistics Activity Countries Logistic

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Total GDP US$ 3 Trillion.

India spends 13% of its GDP on logistics compared to an average of 10% in

countries. India logistics market to double by 2012.

The industry would need 4,20,000 skilled people in the SeniorResource Categmanagement it self, by 2015.

Currently, India logistics industry has only 14,000 Warehouse Managers but req35,000 .

Technological change in the logistics industry demands a trained workforce i

sector. Indian logistics industry is at an inflection point and has reached a market size o

in year 2010.

The organized logistics, which is about 6% of the total logistics market, is growyear.

India : Logistics Industry Scenario

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Distribution of Logistics Cost

% of lo

Inbound Logistics

Transportation

StorageInventory

Process LogisticsTransportation

Storage

Outbound Logistics

TransportationStorage

Inventory

Order Processing

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Supply Chain

Intelligence

ProO

Management Devmks

[email protected]

http://www.mks507.iwebs.ws

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1 Apple 1 App

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1. Apple2. Procter & Gamble3. Cisco Systems4. Wal-Mart Stores5. Dell6. PepsiCo7. Samsung Electronics

8. IBM9. Research In Motion10. Amazon.com11. McDonalds12. Microsoft13. The Coca-Cola Company14. Johnson & Johnson15. Hewlett-Packard16. Nike17. Colgate-Palmolive18. Intel19. Nokia20. Tesco

Top 20Supply Chains

2009

1. App2. McD3. Am4. Uni5. Inte6. Pro7. Cisc

8. Sam9. The10. Co11. De12. Ind13. Wa14. Ni15. Sta16. Pe17. H&18. Ca19. 3M20. Le

Source:AMR res earch, 2013

http:/ /www.amrresearch.com

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Why Implementing Supply Chain?

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The right

ProductThe right

TimeThe r

CustoThe right

QuantityThe right

StoreThe right

Price++ ++ +

Flexibility

DeliveryReliability Delivery Time

Lead time

Inventory

Level

ProductVolume

Mix Place

Time

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Very Satisfied

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Customer Satis

Actual Performance

Providing(performance n

you in a

Providing delighters (unknown excitingcharacteristics) can get you market leadership.

CustomerSatisfaction

Very Satisfied

Very Unsatisfied

Per

formsVeryPoorly

You are OKifyou dont

provide them.

redial button on telephone receiver; spare change holders/soft drink holders in automobiles; one-touch recording

button on some VCRs;

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Todays market demands

Quality Being RIGHT

Speed Being FAST

Dependability Being ON TIME

Cost Being PRODUCTIVE

Being ABLE TO CHANGEFlexibility

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Use Value

Esteem Value

Place Value

Time Value

Need vs Requirement

Remove the ef

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Decision Dilemmas.?

Chinese Room A rgument (Searle)

Prisoner 's Dilemma

Laws of Robot ics

Searle, J.R. (1980), 'Minds, brains and programs',Behavioral and Brain Sciences, 3 (3):

Tucker, Albert W., (1980), On Jargo n: The Priso ner's Di lemm a, UMAP J ourn al 1, 101

Poundstone, W., (1992), Prisoners Dilemma, New York

Asim ov, Issac (1957), The Naked Sun , Fawcett , New York

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Lesson Learnt:

Have we defined it properly?

.coz a well stated problem is halfsolved.

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The classical prisoner's dilemma

PrisonerB

Stays Silent Betra

Stays Silent

A: Years

B: Years

A: 10 Y

B: 0 Ye

BetraysA: 0 YearsB: 10 Years

A: 2 YeB: 2 Ye

Prison

er

A

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The classical prisoner's dilemma

Chicken GameRacer

He

Turn Do Not T

TurnYou: 0

He: 0

You:

He:

Do Not TurnYou: 1He: 0

You: He:

RacerYou

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Seethe market,

Do not assumeit..

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Keiretsu (co-opetition)

win-winsituation

a chain is only as good as its weakestlink

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That reallydepends onWHERE youwant to go?

Which PATH Ishould takefrom here?

Aimless aims

I wanna cut cost at any cost !

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Dontcutcost at anycos

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Competing for the Future

with Gary Hamel)

SonyCore Competency

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yminiaturization

3Mknowledge of substadhesives

Hondaengines and power

Cannonoptics, imaging, ele

Products include cocameras, and image

Boeingintegrating large sc

commercial jetlinersmissiles

Core Competency

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INPUT

OUTPUT

PERFORMANCE

OUTCOME

IMPACT

EFFICIENCY

EFFICACY

EFFECTIVENESS

Utilization =

Productivity =

Performance =

Customer Satisfaction =

Supplier Performance =

Value AddedProcess

Outsidethefir

m

Withinthefirm

Sourc e: Mentzer, J. T., Supply Chain Management, Respon

Productivity

impact assessment analysis

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Trade-off betweencost (efforts) and outcome (customer satisfaction)

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Supply Chain Intelligence

making false impressionpromotion tactics?

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A supply chain consists of the flowof products and serv Raw materials manufacturers

Intermediate products manufacturers End product manufacturers Wholesalers and distributors and Retailers

Connected by transportationand storageactivities, and

Integrated through information, planning, and integration

entitiesactivitiesproblem spotslinkages?

Diff t i ti i th l h i h diff

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Different organizations in the supply chain may have differeobjectives

Manufacturers: longrun production, high productivity, lowproductio

Distributors: lowinventory, reduced tran

costs, quickreplenishmeCustomers: shorterorder lead time,

stock inventory, large variety low prices

1st Tier2nd Tier 2nd1st Tier3rd Tier

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Supply Chain: Manufact

CerealManufacturer

FlourProcessor

PolyethyleneBag

Manufacturer

ChemicalProcessor

Farmer

OilCompany

ForestLumberProvider

CorrugatedManufacturer

GroceryDistributor

RG

1 TierSupplier

2 TierSupplier

2nd

Cus1stTier

Customer

3 TierSupplier

(Material) P

Demand

Supply

Upstream

Internal

Downs

FocalCompany

customer / consumer / client

manage relationship with whom.in which order? CRM???

understand contextand hence the relative preference according

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CRM???

understand context and hence the relative preference accordi

Organizations can find their most valuable customers through RFM

How recentlya customer purchased itemsHow frequentlya customer purchased itemsThe monetaryvalue of each customer purchase

S l Ch i C t

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Supply Chains Components The supply chain involves segments:

, where sourcing or procurement from external s

, where packaging, assembly, or manufacturing t

, where distribution or dispersal take place,

external distributors.

movement of information and money and the procedures suppmovement of a product or a service.

Organizations and individuals are also part of the chain

in which industry, which segment to be focused more?

Supply Chain Flows

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Supply Chain Flows

Supply Chain Flows Materials flows are all physical products, new materials, and su

flow along the chain.

Information flows relates to all data associated with demand, sorders, returns and schedules.

Financial flows include all transfers of money, payments, crediinformation, payment schedules, e-payments and credit-related

Supply chain refers to the flow of materials, information, payments, and sefrom raw material suppliers,through factories and warehouses (Value Chain ),to the final consumer (Demand Ch ain).

I t includes tasks suc h as purchasing, payment f low, mater ia ls handl ing, product ion planning & cont

warehou sing , invento ry contro l, and dis tr ibution . When it is managed electronic ally it is referred to a

flow speed?... quantum?... precedence?

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Imm. Suppliers Imm. CustomerTheFirm

1stTierSuppliers

TheFirm

2ndTierSuppliers

2nd TCusto

1stTierCustomer

1stTierSuppliers

TheFirm

2ndTierSuppliers

2nd TCusto

1stTierCustomer

nthTierSuppliers

......

Extende

Ultimat

can we manage ultimate supply chain?

The FirmMost companies are working to create

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The

Firm

Key Suppliers

TheFirm Key Customer

Key Suppliers Key Customer

Key Suppliers Key Customer

TheFirm

Suppliers CustoTheFirm

The Firm

Purchasing Production Marketing

R & D Logistics

seamless processes within their ownfour walls. (47%)

Some comSCM inmarketingintegratiowith key c

Many companies houseSCM in purchasing &

focus on integration withfirst-tier suppliers (34%)

Few companies systematicallyintegrate up & downstream(8%)

Collaboration from suppliers' supplier to customers' customer is a vision not yet fully

Supply ChainIntegration

a delicate balance among sensitive relations?

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THE FOCAL COMPANY'S ALTERNATIVES FOR INVOLVEMENT WIT

Alternative 1)Integrate with and actively ma

Alternative 2)Monitor the procedures of ComCompany B for integrating an

Alternative 3)Not involved, leave the integramanagement up to Company A

FocalCompany

Company

A

Company

B

Company

B

Company

B

Link 2

Link 2

Link 1 Link 2

When to monitor when to let them own.. When to dictate

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Supply Chain

UPSTREAM INTERAL

Value Chain

why it should not be termed as demand chain management

Major Issues in SCM

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1. Location

2. Transportation and Logistics

3. Inventory and Forecasting

4. Marketing and Channel Restructuring

5. Sourcing and Supplier Management

6. Information and Electronic Mediated Environments

7. Product Design and New Product Introduction

8. Service and After Sales Support

9. Reverse Logistics and Green Issues

10. Outsourcing and Strategic Alliances

11. Metrics and Incentives

12. Global Issues.

Source: Py ke, D.F., A Framewo rk for Teaching Supply

Major Issues in SCM

learn what constitutes in total known as supply chain

management ?

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is it not blurring boundaries of concepts in present?

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buyers mkt vs sellers mktshrinking profit margins?

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Views of Supply Chain

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Views of Supply Chain

Cycle view: processes in a supply chain are divided in

of cycles, each performed at the interfaces besuccessive supply chain stages

Push/pull view: processes in a supply chain are dividcategories depending on whether they are executed

in responseto a customer order (pull) in anticipationof a customer order (push)

basis of viewswhyhow

Cycle View of Supply Chains

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y pp y

Customer Order Cycle

Replenishment Cycle

Manufacturing Cycle

Procurement Cycle

Each cycle occurs at the

interface between two

successive stages

Customer order cycle

(customer-retailer)

Replenishment cycle

(retailer-distributor)

Manufacturing cycle

(distributor-manufacturer)

Procurement cycle

(manufacturer-supplier)

Cycle view clearly defines processesinvolved and the owners of each process.

Specifies the rolesand responsibilitiesof each member and the desired outcome of

predictabilityoforders

sizeofo

rder

can they be synchronized them.

quanitywisetimewise.anticipationwise?

Push/Pull View of Supply Chains

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Push/Pull View of Supply Chains

Where to pin decouwill you push the rope or pull it? depends

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Supply Chain Macro Processes in a Firm

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pp y

Supply chain processes discussed in the two views caclassified into Supplier Relationship Management (SRM)

Internal Supply Chain Management (ISCM)

Customer Relationship Management (CRM)

Integration among the above three macro processes isfor effective and successful supply chain managemen

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Typology of Supply Chain

On the basis of decoupling point (ETO, MTO, ATO, MTS) sup

Pushvs. Pullsupply chain Leanvs. Agilesupply chain

Efficientvs. Responsivesupply chain

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Trade-off between

cost (efforts) and outcome (customer satisfaction)

Understanding the Supply Chain: Cost-Responsiveness Efficie

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Low

High

Re

sponsivenes

s

Cost (Efficiency) LoHigh

DELL

WA

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Supply chain dynamics

Supply chains with different end objectives nemanaged in different ways

Match product character ist ics with supp ly chain chara

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Matching the supply chain with market

Lean

supply chainmanagement

Mis

Mismatch

Ag

supplymanag

Nature of demandFunctional products Innovativ

PredictableFew changesLow varietyPrice stable

Long lead-timesLow margin

UMHPr

ShH

Supplycha

inobjectives

Responsive

Efficient

Low

cost

Highutilization

Minimumi

nventory

Low-costsuppliers

Low

throughputtimes

Highutilization

Deployedinventory

Flexiblesuppliers

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Campbell's Soup Fashion ApparelProduct Characteristics

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p p pp

Life cycle

Contribution margin

Variety

Forecast error

Stock-out rate

Forced markdowns

Make-to-order LT

Product Life-Cycle: Soup

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1969

1999

1979

200

Product Life-Cycle: Fashion

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Fall Winter Spr

ForecastiMargins?

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Stockout Rat

Markdowns?Variety? New Design?

Functional Products(Soup)

Innovative Products(Fashion clothing)

Demand Uncertainty Low (forecast error) High (forecast error)

Life Cycle Long Short

Risk of Obsolescence Low High

Profit Margin Low High

Variety Low High

Demand volume High Low

PC SUPPLY CHAINS

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V

irtualIntegration

Customer

Dell

Suppliers

Dell Supply ChainTypical PC Supply Chain(Compaq, HP, IBM, etc.)

Customer

DistributionChannels

Manufacturer

Suppliers

PUSH

PULL

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SCM versus Logistics: Four Perspective

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SCM= purchasing+ logistics+ operations+ marketing+..

SCM as Logistics outside the firm

Logistics Defined

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Logistics Management is that part of Supply Chain Mana

that plans, implements, and controls the efficient, effe

forwardandreverseflowand storage of goods, servic

related information between the point of origin and the

consumption in order to meet customers' requireme

Four Subdivisions of Logistics Business logistics Military logistics Event logistics Service logistics

Value-Added Roles of Logistics

The five principal types of economic

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The five principal types of economicutility which add value to a product orservice :

Form

Time

Place

Quantity

Possession

While form and possession utility are not specifically related to logistics, neither woulwithout getting the right items needed for consumption or production to the right placand in the right condition at the right cost. These "five rights of logistics," credited to Plowman, are the essence of the two utilities provided by logistics: time and place util

How much?

where?when?

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Inventory/order cycle length

Inventory / lost sa

Inventory

Transportation/los

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Product dollar value / logistics costs

Susceptibility to loss & damage/logisti

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Supply Chain StrategyPart

1.4Achieving Strategic Fit:

Consistent SCM and Competitive strategie

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Fit SC to the customer

Understanding the Customer Range of demand, pizza hut stable

Production lot size, seasonal products

Response time, organ transplantation

Service level, product availability

Product variety

Innovation

Accommodating poor qualityImpli

f

p g

Implied

Uncerta

Issues Affecting Strategic Fit

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Multiple products and customer segme

Product life cycle

Competitive changes over time

Early: uncertain demand, high marginproduct availability is most important

Late: predictable demand, lower marg

Shift from responsiveness

increased eInternet

Achieving StraUncertainty/Respon

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y/ p

Implied uncertaintyspectrum

Responsivesupply chain

Efficient supplychain

Certain demand Unce

Responsivenessspectrum

Low Cost

HighCompanies try to moveZone of Strategic fit

INTRODUCTION

MATURING

COMMODITY

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The Strategic Fit Framework

for achieving strategic fit in Supply Chain StrategyA Framework for Structuring Drivers

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Competitive Strategy

Supply Chain Strategy

Efficiency Res

Facilities Inventory Transportation Information Sourc

Cross functional drivers

FacilitiesR l i th l h i C t f f iliti d i

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Role in the supply chain

the where of the supply chain manufacturing or storage (warehouses)

Role in the competitive strategy

economies of scale (efficiencypriority)

larger number of smaller facilities(responsivenesspriority)

Components of facilities decis

Location

centralization (efficiency)decentralization (respons

other factors to consider customers)

Capacity (flexibility versus

Manufacturing methodologfocused versus processfo

Warehousing methodologyjob lot storage, cross-dock

InventoryUnexpected changes in customer demand (always

hard to predict and uncer ta inty is growing)

Types of InventoCycle inventory

Average amount of inventory used toshipments

Depends on lot size

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hard to predict , and uncer ta inty is growing)

Short product life cyclesProduct proliferation

Uncer ta in s upp lyQuantityQualityCostsDelivery time

Inventory exists because of a mismatchbetween supply and demand

Source of cost and influenceon responsiveness

If you move your inventory faster, you dont need as much inventory (inventory veloci

If responsivenessis a strategic competitive priority, a firm can locate largeramounts of inventor

If cost is more important, inventory can be reducedto make the firm more efficient

Trade-off: More inventory increases responsiveness, less inventory increases efficien

p

Safety inventory

inventory held in case demand excee

costs of carrying too much inventorysales

Seasonal inventory inventory built up to counter predicta

cost of carrying additional inventory vproduction

Opportunistic Inventory:

Takes advantage of bargains.

Moves the product betweenstages in the supply chain

If responsiveness is a strategipriority, then faster transportaprovide greater responsiveneswho are willing to pay for it

Transportation

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stagesin the supply chain

Impact on responsiveness andefficiency

Fastertransportation allowsgreaterresponsiveness butlowerefficiency

Also affects inventory andfacilities

g p y

Can also use slower transportcustomers whose priority is p

Mode(s) of TransportationAir: fastest but most expensiveTruck: Relatively quick, inexpensive and vRail: Inexpensive mode to be used fShip: Slowest but often the most ecoPipeline: Used (primarily) for oil and gasElectronic transportation:for goods as m

Route and Network Selectionroute: pathalong which a product isnetwork: collectionof locations and

Insource or Outsource to some 3PL

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TransportationNetworks

The connection between the

Information Push (MRP) versus pull (deminformation transmitted quicthe supply chain)

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The connection between thevarious stages in the supplychainallows coordinationbetween stages

Crucial to dailyoperation of eachstage in a supply chain: e.g.,production scheduling, inventorylevels

Allows supply chain to becomemore efficient and moreresponsive at the same time(reduces the need for a trade-off)

Coordination and informatio

Forecasting and aggregate p

Extentand modes of informaand coordination

Pricingand revenue manage

Enabling technologiesEDIInternetERP systemsSupply Chain Managem

Information exchange is necessary for the most extensive mode

The role of Info

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Information exchangeis necessary for the most extensive modecoordination sought in contemporary supply chains. It allows thto improve simultaneously its efficiency and responsiveness.

Information-related decisions Push vs. pull

Extentand modes of information sharing and coordination

Forecasting and Aggregate Planningschemes

Pricingand revenue managementpolicies

Enabling Technologies: Electronic Data Interchange (EDI):Enables paperless transactions, primoperations of the SC.

TheInternetand the WWW.

Enterprise Resource Planning (ERP):enables transactional tracking andinformation in the SC.

Supply Chain Management (SCM) software:decision support tools.

Set of business processes required

Sourcing Pricing strategies

Prici

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p qto purchase goods and services ina supply chain

Supplier selection, single vs.multiple suppliers, contractnegotiation

In-house vs. outsource

Supplier evaluation and selection

Procurement process

g gmatchdemand an

Firms can utilize ostrategies to imprand responsivene

Low price and lowavailability; vary p

response times Pricing and econo

Everyday low priclow pricing

Fixed price versus

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Strategic Scope

Expanding Strategic Scope

Scope of strategic fit

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Scope of strategic fit The functions and stages within a supply chain that devise a

integrated strategy with a shared objective

One extreme: each function at each stage develops its own Other extreme: all functions in all stages devise a strategy jo

Five categories: Intracompany intraoperation scope

Intracompany intrafunctional scope Intracompany interfunctional scope

Intercompany interfunctional scope

Flexible interfunctional scope

Strategic Scope:Intracompany Intraoperation Scope

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p y p pSuppliers Manufacturer Distributor Retailer

CompetitiveStrategy

Product Dev.Strategy

Supply Chain

Strategy

MarketingStrategy

Strategic Scope:Intracompany Intrafunctional Scope

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Suppliers Manufacturer Distributor Retailer

CompetitiveStrategy


Supply Chain

Strategy

MarketingStrategy

Strategic Scope:Intracompany Interfunctional Scope

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CompetitiveStrategy


Supply Chain

Strategy

MarketingStrategy

Strategic Scope:Intercompany Interfunctional Scope

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CompetitiveStrategy


Supply Chain

Strategy

MarketingStrategy

Different Scopes of Strategic Fit Across a Supply

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CompetitiveStrategy


Supply Chain

Strategy

MarketingStrategy

Intracompanyintraoperation

Intracompany

intrafunctional

Intracompanyinterfunctional

In

in

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Supply

Chapter-02

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emerging

Trends and Future

Reenginee

Prof. M

Operations M

Management Development I

p

[email protected]


Global Retail Development Index

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Ten

Emerging trends

Current Trends in Supply Chain ManagementExpanding the Supply Chain

firms are expanding partnerships and building facilities in foreign markets. The expansion inv

b dth f i f t i ffi & t il it f i li & t

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breadth-foreign manufacturing, office & retail sites, foreign suppliers & customers

depth-second and third tier suppliers & customers

Increasing Supply Chain Responsiveness Firms will increasingly need to be more flexible and responsive to customer needs Supply chains will need to benchmark industry performance and meet and improve on a c Responsiveness improvement will come from more effective and faster product & service

The Greening of Supply Chains Producing, packaging, moving, storing, delivering and other supply chain activities can be

environment Supply chains will work harder to reduce environmental degradation

Large majority (75%) of U.S. consumers influenced by a firms environmental friendliness re Recycling and conservation are a growing alternative in response to high cost of natural re

Reducing Supply Chain Costs Cost reduction achieved through: Reduced purchasing costs, Reducing waste, Reducing

Reducing non-value added activities

Continuous Improvement through: Benchmarking- improve over competitors performancIncreased knowledge of supply chain processes

Current Trends in Supply Chain ManagementfromCross-functional Integration toCross-enterprise, too

How do we coordinate activities across companies, as well as across internal functions, to supply pr

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fromPhysical Efficiency toMarket MediationHow do we minimize the costs of matching supply and demand while continuing to reduce the costs

distribution?

fromSupply Focus toDemand FocusHow can we get earlier demand information or affect the demand pattern to match supply & demand

fromSingle Company Product Design toCollaborative, Concurrent Product, Process and SHow should collaborators design the product, process and supply chain to minimize costs?

fromCost Reduction toBreakthrough Business ModelsWhat new supply chain and marketing approach would lead to a breakthrough in customer value?

fromMass Market Supply toTailored OfferingsHow should we organize the supply chain to serve each new customer or segment uniquely and pro

experience?

Source: Kopczak & Johnson, The Supply Chain Management Effect, Sloan Ma

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Few Head linesto move towards

Risk-adjustedSupply Chain Management

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"Typhoon Deals New Blow to Taiwan Manufacturers

( New York Times , Sept. 20, 2001) "South Korea Incurred $270M Export Losses from U.S. Ports' Woe ( Dow Jones International News , Oct. 10, 2002)

"Uncertain Economy Hinders Highly Precise Supply System ( New York Times , March 15, 2003)

"SARS Could Impact IT Supply Chain (wallstreetandtech.com , April 2, 2003)

A sudden shock to the rope with little or no slack can result in a

Process Demand SupplyUncertainty

Supply Chain Characteristics Displayed byValue Streams in LSDG Audit

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Source: Logist ics Systems Dynamic Group (LSD

LSDGUncertainty Index

risk adjustment

make a Seamless Supply Cha

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can't think of my supply chain as me and my suppliers," say

Accenture. "So much has been outsourcedto suppliers that theextension of your business.

To succeed, you need to merge theirmetrics with yourmetrics.

convergence

Sourc e: http ://www.keepmedia.com/pub s/Supply ChainManagement

CPFR:Collaborative Planning

and Replenish

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committee, made upmanufacturers, an

provider

developed a set oprocesse

forcollaboration on a

buyer/seller fu

towards overall efficsupply cha

collaboration

Voluntary Inter-industry Commerce Standards Association (VICS)

Graham Stevens Supply Chain Reference Framew

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integration

Source: Steve Geary, Paul Childerhouse, And Denis Towil , Uncertainty

Supply Chain Manag

SCOR Model

BPRBench-

ki

A company canimprove theway it travelsthe road by

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BPRmarking

Processmeasurement

Top Level

(ProcessTypes)

Configuration level(Process categories)

Process element leve

(Decompose processe

Implementation leve(Decompose process elem

configurability

So

the road bymoving fromfoot to horseand then horseto car

BPR looks attaking adifferent path,such as anairplane whichignore the roadcompletely

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SC

e-SC

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Who

Who

Who needs t

Who needs

RACI analysis of business processes:

SC

RACI(process ownership)

Sourc

AMR Research's three-tiered Hierarchy of Supply Chain Metrics Using

Supp

with a

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Source: Debra Hofman, AMR Research Achieving Supply Ch ain Exc

granularity

top

targ

analy

g

comp

and e

and di

of th

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granularityInventory Hides Problems Less Invento

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Productivityproblems

Productivityproblems

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Compatible partnerhaving same granularity

Supplier Manufacturer Warehouses Retaile

Ventana Research Performance Cycleperformance from a business and IT perspectiveComprehend the status ofpeople, organization, and

b i

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Source: Mark Smith , Ventana Research, Imp roving Supply Ch ain Perfor

chain intelligence

business processes

Communicate,guidance, training,

incentives

Plan for futudecision

performance

Customer-Driven Supply Chains

Lucent Technologies recently installedTradeStream to gain better visibility into

The fact that Lucent caintegrated, real-time viean information exchang

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its major telecommunications orders fromcustomers like AT&T, which typically are

very large orders of 200 or more line items

an information exchangfield-service employees

allows Lucent to do thincould before, because econfidence in the data tavailable,says Henry Bpresident of marketing sOptum. Now they havethe data, which is basedvisibility.

real-time visibility

Source: Jean V. Murphy , Custom er-Driven Supp ly Chains Begin With Real-Time Visibi l i ty Global Logist ics & Sup ply

CRM to CMR CRMtoCMR

Lean supply chains1. Sort: Needed from the unneeded2. Shine: Clean, scrub, and fix3. Set in order: A place for everything4 Standardize: A plan to sustain

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Source: Russell W. Goodman, Leaning the Supply Chain: Like a Diet, It Never Ends Global Lo gist ics & Supply

leanness

1. Seiri () : Sorting: Get rid of what you dont need2. Seiton () : Simplify, Straighten, Set in order: Place for everything, everything at its place3. Seis () : Shine: Polish your operation, make everything more visible4. Seiketsu(): Standardize: To avoid redundant processes, standardize similar5. Shitsuke() : Sustaining: There must be sustained monitoring of the entire lean process

4. Standardize: A plan to sustain5. Sustain: Following through

Convergence

Risk adjustment

Collaboration

1

2

3

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Emergi

Integration

RACI (Process ownership)

Configurability

Chain intelligence

Granularity

Real-time visibility

Leanness

4

5

6

7

8

9

10

Agility

Objectives:

Respond to short-termh i d d

Triple-A Supply Chain

Adaptability

Objectives:

Adjust SCs design to meetl hif i k

Al

Objective

Create incf

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changes in demand orsupply quickly; handle

external disruptionssmoothly

Methods: Promote information flow

Develop collaborativerelationships

Design for Postponement

Inventory buffers of

inexpensive, key items Dependable logistics systems

or partner

Contingency plans / crisis mgt.teams

structural shifts in markets;modify supply network to

strategies, products andtechnologies.

Methods: Monitor global economies;

suppliers/mkts

Use intermediaries for freshsuppliers & logisticsinfrastructure

Evaluate needs of ultimateconsumersnot just immediatecustomers

Create flexible product designs

Evaluate products technology /product LCs

performan

Methods: Exch

knowsupp

Lay dresposupp

Evaluconsimme

Equitand ginitiat

Source: Lee, The Triple-A Supply Chain Management, Harvard B

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Supply

Chapter-03

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Supply Chain

Technology and Collaboration

Informatio

Prof. M

Operations M

Management Development [email protected]


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Supply Chain TechnologyInformation Visibility: RFI

Part

3.1

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Information Visibility: RFID

Technology Technology Technol

Customer Customer ServerServer Customer

Role of Technology in Services

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Technology Technology

Server ServerCustomerCustomer

D. Technology-Mediated

Service Encounter

E. Technology-Generated

Service Encounter

A. Technology-Free

Service Encounter

B. Technology-Assisted

Service Encounter

C. Technolo

Service E

Source: Craig M. Froehle and Aleda V. Roth, New Measurement Scales for Evaluating Perceptions of the TechService Experience, Journal of Operat ions Management

Radio Frequency Identification

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Identification system that

consists of chip-based tagsand readers

Data is store

retrieved rem

radio waves

Onboard

Product i

Major Player: IBM, Texas Instruments

The RFID device serve

a bar code or a magne

credit card or ATM ca

identifier fo

RFID: UPC vs. EPC

UPC Requires line-of-sight readers

Only one product can be scanned at a

time

EPC Tags can be read from many ra

Many products can be scanne

Tags can store large amounts o

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A class of product

Static

Tags can store large amounts o

Uniquely identifies products

specific instance of a p

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Header

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length, type, structure, version and generation of EPC

Header(8 bits)

specific format of EPClength, type, structure,version and gen

256

ePC Manager(28 bits)

Who owns this set ofnumbers

268,435,456

Object Class(24 bits)

Type of object,class of item likeSKU

16,777,215

Serial Number(36 bits)

unique instance of theobject

68,719,476,735268 million companies can each categorize

16 million different products

and each product category may contain over

68.7billionindividual items.

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The Physics of RFID

How It works.

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LowFreq.

HighFreq.

MediumFreq.

134 kHz 13.56 MHz 915 MT1-RFID T1-RFID UHF T1

Ultra HighFreq.

LF MF HF VHF UHF

100 kHz 1 MHz 10 MHz 100 MHz

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ITEM PACKAGING TRANSPORT UNIT UNIT LOAD CONTAINER

Active RFID

ISO 18000-7

Passive RFID

125 kHz & 13.56 MHz ISO 15693 & ISO 14443-3

868 MHz EPCglobal Gen 2 ISO 18000-6

Bar Code

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2003

Source: http://www.symbol.com/prod

20

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RFID Regulation ITU Re

International Telecommunication Union

RFID Capabilities

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RFID Capabilities

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Applications of RFID

Applications

Keyless entry

EPC

Proximity cards

Animal and human imp

Avid

Pet-ID

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y

Libraries Security device

Bookstores

VeriChip

RFID-privacy legislatio

REAL ID Act

.

Size compariso(RFID chip, Dime, Rice

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How is an RFID chip implanted?

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Human

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Human

Tracking

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RFIDImplant

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Anim

als

Track

ing

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Shops

Security

Doors andGarages

Security

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Product Mon

and Cont

Shoppin

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Electronic

Passport

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Contactless

payment

Automated

Toll Collection

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Product Tracking

Wireless / Batch

Inventory ManagementMaterial Handling

By Destination

Wh i it i ? Wh h

Tracking Inventory

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y g

Material HandlingInspecting / Maintaining

Material HandlingAggregate / De-aggregate

Where is it?

What is i t?

What is inside

the box?

Where is it going ? Where has

Should it be here?

What have I assembled or disassembled?

How many do I have? Do I have enough?

Has this been repaired?

Is this under warrantee?

Has this been inspected?

Is th is com plete?

What is the assets status or

Library Inventory Process

RFID also has had a significant impact on inventoryprocesses in libraries. With a full hand-held wand which ispassed alongside the books on the shelves; by taggedcollection, inventory can be taken with a portable, he readerpicks up the individual signals from each item's tag, withoutneeding to remove or even tip the books outward from theshelves.

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With RFIDnot only does the cost of doing an inventory in the library go down, the odds of actuinventories goes up. Inventory with RFID has also proven to be extremely useful and cost-effectiveor miss helved items. Even Searching for books by just typing its name on the Reader .

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Internet of ThingsCivil liberties groups (among others) have become increasingly concerned about the

use of RFIDs to track the movements of individuals. For example, passports will

soon be required to contain some sort of RFID device to speed border crossings.

Scanners placed throughout an airport, for example, could track the location of

every passport over time, from the moment you left the parking lot to the moment

you got on your plane.

There are also concerns about the fact that, even after you leave the store, any RFID

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, y , y

devices in the things you buy are still active. This means that a thief could walk past

you in the mall and know exactly what you have in your bags, marking you as a

potential victim. A thief could even circle your house with an RFID scanner and pull

up data on what you have in your house before he robs it. Military hardware and

even clothing make use of RFID tags to help track each item through the supply

chain. Some analysts are concerned that, if there are particular items associated

with high-level officers, roadside bombs could be set to go off when triggered by an

RFID scan of cars going by.

There was a recent report revealing clandestine tests at a Wal-Mart store where

RFID tags were inserted in packages of lipstick, with scanners hidden on nearby

shelves. When a customer picked up a lipstick and put it in her cart, the movement

of the tag was registered by the scanners, which triggered surveillance cameras.

This allowed researchers 750 miles away to watch those consumers as they walked

through the store, looking for related items.

"Imagine an Interneeveryday objects, roconnected to one andigital world.

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Comprehensiveness

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Supply Chain Coordinatio(Bullwhip effect)

Part

3.2

Gaps

No clear identification of ownerand customersof measures

(joint determination is very essential)

Not evaluating consequencesand outcomes

(Efficacy is prerequisite to customer satisfaction)

Imbalance between efficiencyand effectiveness

(key processes has to be identified and owned)

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F

illThe

G (key processes has to be identified and owned)Lack of Process Orientationof measurement

(Physical Orientation alone is not a suitable indicator)

Lack of Measures of relationships

(economic, physical, psychological measures are equally

Lack of real-time visibility

(every affected party must be informed)

Lack of Multi-firmoptimization

(have to look beyond sub-optimization)

*

Adding value along the chain is essential for competitiveness, however problems exis

complex or long chains and in cases where many business partners are involved.

due to

uncertainties

need to coordinate several activities, internal units, and business partners.

Supply Chain Problems

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Demand forecasts are a major source of uncertainties Competition

Prices

Weather conditions

Technological development

Customer confidence

Uncertainties exist in delivery times

Machine failures Road conditions

Shipments

Quality problems may also create production delays

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Coordinationin supply chains

Obstacles Incentive Obstacles Information Processing Obstacles

Operational Obstacles

Pricing Obstacles

Coo

in a Sup

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g

Behavioral Obstacles

Manageria Aligning Goals and Incentives

Improving Information Accuracy

Improving Operational Performanc

Designing Pricing Strategies to Stab

Building Strategic Partnerships and

Achieving Coordination in Practice

Quantify the bullwhip effect

Get top management commitment for coordination

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Devote resources to coordination

Focus on communication with other stages

Try to achieve coordination in the entire supply cha

Use technology to improve connectivity in the supp

Share the benefits of coordination equitably

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Bullwhip effect

What is Bullwhip Effect?

The bullwhip effect is a phenomenon observed in supply chademand variability increases as one moves up the supply c

customers towards to distributors to manufacture

At P&G, diap

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Bullwhip effect refers to the phenomenon where orders to theto have larger variance than sales to the buyer (i.e., informatioand the distortion propagates upstream in an amplified form (amplification).

, p

distributors hvariability that cconsumer fluctu

At Hewlett-Packto the printer have much variations that c

SStores orders towholesaler

Wholesalersorders to

manufacturer

Manufacturersorders to its

suppliers

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00 TimeTime00 Time

RetailStore

Whole-saler

Manu-facturer

Supplier

Time

Inaccurate information can cause minor fluctuations in demand for a produas one moves further back in the supply chain. Minor fluctuations in retail s

can create excess inventory for distributors, manufacturers, and s

DCs weekly ordersto Manufacturer w

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Babies dailydemand for diapers

Retailers dailyorders to

distribution center

9,000

7,000

5,000

3,000

0

Orderquantity

Day 1 Day 30 Day 1 Day 30 Day 1 Day 30 Da

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Causes

price fluctuation

poor demand

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erratic shifts in orders up and down the supply ch

order batching

rationing within thechain

forecastingBullwhip Effect

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Illustrations

When product demand exceeds supply, a manufacturer ofteproduct to customers. Example:

Cause 2: Rationing and Shortage Gaming

Dealer 1 Order = 100 Received = 67

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Knowing the manufacturer policy, customers exaggerate their realneeds when they order (gamethe system). Example:

As a result, customers orders give the supplier little information on a products realdemandproblem for new products

Car ManufacturerAvailable = 200 Dealer 2 Order = 200 Received = 133Only 2/3 of the order can b

Car Manufacturer

Dealer 1

Dealer 2

Need = 120

Need = 180

Order = 180

Order = 270Order more than needed so that if only 2

order is filled you still get what you actua

Available = 500

Coordinating S.C. Inventory Consider a simple demand driven supply chain: a buyer and a su

The buyer produces D= 10,000 units/year of a product at a constatime the buyer places an order for a certain component, the order$100. The buyers inventory holding cost is H= $10/yr and optimquantity:

BuyerSupplier Customers

DS

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The supplier produces an order whenever one is received from th

Each time the seller sets up to produce a batch of componentsetup cost is Ss= $300.

The suppliers total (setup) cost = Ss(D/EOQb) = 300(10,000/44

Optimal ordering quantity for the central izedsupply chain:

2 2(10,000)(110

bb

DSEOQ

H

2 ( ) 2(10, 000)(100

10

b sSC

D S SEOQ

H

$ 11,184

TC = 894 x 10/2 + (10000/894) x 100= $ 5,589

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Suppliers cost (at Q=4= Ss (D/E

= $6,711

Buyers cost (at Q=447= (2 x D

= (2 x 10

= $ 4,472

Suppliers cost (at Q=8

= Ss (D/E

= $3,356

SC overall cost (at Q=8

= (2 x D

= (2 x 10

= $ 8,944

$ 8,944

$ 5,589

$ 3,356

$ 4,472

$ 6,711

If buyer orders Q=894, supply chains total cost is reduced

Buyer's optimal

quantity

Centralized supply chain's

optimal quantity Cost saving

Q=447 Q=894

Supplier cost $6,711 $3,356 $3,356

Buyer cost $4,472 $5,589 -$1,116

Supply chain cost $11,184 $8,944 $2,239

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But, buyer incurs a higher cost, and will not order Q=894The SC is NOT coordinated without a compensation for buyer

For any order quantity Q, the buyer always bears a fraction of of the total chain

Supplier promises to pay buyer = (1) (buys total holding a The buyer promises to pay the supplier = () (suppliers total setup c

Buys optimal quantity = SCs optimal quantity = centralized SCs optimal qu

There exist a such that buyer and suppliers are both better off than orderi

Order synchronization Multiple retailers who tend to order around the same time period

Manufacturers responding to an MRP system that place raw material orders at the beginnin

Order batching In order to save on shipping or ordering costs, firms order a full pallet or full truck load

Trade promotions and forward buying Supplier offers a discount on product ordered in a specific time period

Supplier offers a quantity discount

Bullwhip effec

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A retailer orders a large quantity intending to take advantage of a discount and sells excesssecond retailer (this strategy is called diversion)

Reactive and over-reactive ordering A retailer who is not sure that demand is stable over time may act aggressively when faced

lower or higher than expected demand

Shortage gaming A retailer who wants to insure product from an under-capacitated supplier may over order e

receive a portion of the ordered quantity

Demand forecast updating / Inflated Orders IBM Aptiva orders increased by 2-3 times when retailers thought that IBM would be out of s

Long cycle times Long lead times magnify this effect

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Effects

Distorted information can lead totremendous inefficiencies

excessive inventoriespoor customer servicelost revenuesineffective shipments

Even slight demanduncertainties and variabilitybecome magnified if eachdistinct entity on the chain,makes ordering andinventory decisions with

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A common way to solve the bullwhip problem is by sharing information a

chain through EDI, extranets, and groupware technologies. For exampl

vendor-managed inventory (VMI) strategy, the vendor monitors inventory l

falls below the threshold for each product this automatically triggers a

shipment.

missed production schedules.respect to its own interestabove those of the chain

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Remedies

Centralizing demand informationoccurs when customer demand informaall members of the supply chain.

Reducing uncertainty. This can be accomplished by centralizing demand

Reducing variability. This can be accomplished by using a technique madWalMartand then Home Depotcalled everyday low pricing(EDLP). EDLP

Bullwhip effect

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promotions as well as the shifts in demand that accompany them.

Reducing lead time. Order times can be reduced by using EDI (electronic

Strategic partnerships. The use of strategic partnerships can change howshared and how inventory is managed within the supply chain. These will b

Cross-docking. This involves unloading goods arriving from a supplier and immegoods onto outbound trucks bound for various retailer locations. This eliminates stoinbound warehouse, cuts the lead time, and has been used very successfully by WalMothers.

Delayed differentiation. This involves adding differentiating features to standardprocess. For example, Bennetton decided to make all of their wool sweaters in undyethe sweaters when they had more accurate demand data. Another term for delayed dipostponement.

Di hi i Thi ll fi t hi di tl t t th th th

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Direct shipping. This allows a firm to ship directly to customers rather than throuapproach eliminates steps in the supply chain and reduces lead time. Reducing one supply chain is known as dis intermediat ion. Companies such as Delluse this approa

Sharing Information:Retailers may give the supplier frequent access to actual coso that the supplier can make its production plans accordingly.

Vendor Managed inventory:The retailer no longer decides when and how muchInstead, the supplier decides the timing and quantity of shipments to the retailer (e.g.

Smoothing the flow of products:Supplier and the retailers coordinate the timinretailers do not place orders at the same time.

Solutions for Battling Bullwhip Effect

Vendor Managed Inventory (VMI)

Vendors take control of inventory management at retailers

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Quick Response (QR)

Vendors receive POS data from retailers, and use tinformation to synchronize their production and inactivities.

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Measure th

Supply

Chapter-04

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supply chain

Performance Measurement

Prof. M

Operations M

Management Development Imks

[email protected]


Different standards of comparisongive different messages

X Actual performance

70

80

90

100Improvement goal

Competitor performance

Absolute performance

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40

X XX

X

X

Time

Last years average performance50

6070

Performance by historical standardsis

Performance against improvement goalis

Performance against competitorsis

Absoluteperformance is

Measuring Supply Chain Performance

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Assets committed to inventory

Inventory turnover (Absolute, Weeks)

Average aggregate value of inventory

1. Assets committed to inventory


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2. Inventory turnover


Inventoryturnover =

Cost of goods sold

Inventory investment

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Inventory turnover

M i S

Higher, the better

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Measuring SuppPerforman

Lower, the better


3. Average aggregate value of inventory

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PART I

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PART-IPerformance Measurement Syste

Why to measure

The current interest in performance measurements has led to

variety of supporting adages or cliches in the industry, such as

A thi d i

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Anything measured improves.

What you measure is what you get.

Anything measured gets done.

You cant manage what you do not measure.

Yesterdays Measurement Crisis

We measured the wrongthings.

We measured everything that was easyto measure.

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The measures we had bore no relat ionship to our

The only measures that mattered were the f inancial o

In the 1980s measurement was a neces

Todays Measurement Crisis

We measure too much.

We spend too much time and effort trying to quantify the

unquant i f iable.Paralysis withothe realit o

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Our measurement systems are so complexthat nobodyunderstands what our priorities are.

We measure, but we fail to fully analyse and take act ionwe gather.

Paralysis withothe reality o

The Reality of Organisations

We use2% of what we measure, the rest is to

We measure the wrong things, to four decimal plac

accuracy

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accuracy .

If you want to know what my inventory levels are today, co

six weeks.

We are masters of the micro. We measure paper clipacquisition times.

We measure everything thand moves, but nothing tha

D d F t l 65% t

Just one of the 3,000 key performance indicators

proposed for the London Underground (www.tf l .gov.uk/tube/, 29 Jan

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TodaysMarket

Reality

Demand Forecasts:only 65% accurate

Orders: 20% filled imperfectly

Inventory:$1.2 trillion stockpiled in the supply chai

Markdowns:on 30% of merchandise sold

New Products:75% fail to meet expectations

* Source:Achieving Supply Chain Excellence, AMR Research, A

Deliver 20% More Perfect Orders68%

90%

Laggards

Leaders

While holding 1/3rdless inventory

Laggards

Leaders

72 Days

54 Days

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What leaders are doing

and spend 5% of revenue less on SCM costs!!

26%

21%

Laggards

Leaders

* Source:Value Chain Survey, IBM-In

1st

Generation performance measuremFrameworkstried to supplement the traditional financial measures with non-financial and often intangible) mea

ended up developing more rounded and comprehensive measurement frameworks,

Balanced Scorecard (Kaplan/Norton 1992)

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Balanced Scorecard (Kaplan/Norton,1992)

The Performance Prism (Neely et al., 2002)

Skandias Navigator Edvinsson / Marlone, 1997)

Balanced Scorecard Approach:A brief Introductionrecommends the use of executive information systems (EIS)limited number of balanced metrics, closely aligned to strategic objectivesexpected to be used by 40% of Fortune 1000 companies

When applied to supply chain context a small number of balanced supply chain measb d f ti

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based on four perspectives:

1.Financial perspective (e.g., cost of manufacturing and cost of wareh

2.Customer perspective (e.g., on-time delivery and order fill rate)

3.Internal business perspective (e.g., manufacturing adherence-to-plan an

4.Innovative and learning perspective (e.g., APICS-certified employees and new product d

Kaplan R S and Norton D P (1992) "The b alanced sco recard: m easures that d r ive per formance", Harvard B usines

aligning activities with stra

Th

The Strategic Balanced Scorecard Framew

Effect

To achieve our financial goals, whatcustomer needs must we sat is fy?

Customer

To satisfy our sh areholders, what finan

object ives must we accompl ish?

Financial

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To achieve and m aintain a compet i t ive posit ion,

how mus t the organizat ion learn and improv e?

Innovation, Learning & Growth

Cause

Actions

To satisfy our cu stom ers, in which internal

busin ess processes must we excel?

Internal Business Process

customer needs must we sat is fy?

What Questions Does a Scorecard System An

Vision

Mission

To succeed financially, howshould we appear to our owners?

Objective Measure Target InitiativeFinancial

MeasureInternal Busin

ObjectiveCustomer

Measure Target InitiativeObjective

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StrategyTo satisfy our

business process

To achieve our vision, how will wesustain our ability to learn and improve?

To achieve our vision,how should we appear to

our customers?Measure Target InitiativeObjective

Learning & Growth

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Articles inHarvard Business Review:

The Balanced Scorecard:

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The Balanced Scorecard:Measures that Drive Performance

Jan - Feb 1992

Putting the Balanced Scorecardto Work

Sep - Oct 1993

Using the Balanced Scorecard asStrategic Management System

Jan - Feb 1996

ThePerformance Prism

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1 . S takeho lder Sa tis fac t ionwho are the key stakeholders and what do they w ant an

2. St rat eg ieswh at strategies do w e have to put in place to sat isfy the wants and nee

stakeholders?

3. Pr oc es ses wh at cr i t ica l processes do we require if we are to execute these strate

4. Capab i li ti eswh at capabi l i ties do w e need to operate and enhance these processe

5 . S takeho lder Con tr ibu tionwhat contr ib ut ions do w e require from ou r stakeholder

mainta in and d evelop these capabi l i t ies?

Neely, A.; Adam s, C. (2001) Perspectives on Performance: The Performance Prism, Journal of Cost Manag

Know your stakeholders and their want

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y

keholderValue

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DeliveringSta

Skandia NavigatorEdvinsson and Malone (1997)

Intellectual capital is measured through themetric measures (91 intellectually based anmetrics) that cover five components: (1) fin(3) process; (4) renewal and development; a

The philosophy behind the report was that statements represent only past financial inf

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organization. Additional information about needed to understand both an organizationcapabilities. To fill this void, Skandia develoreporting that combined traditional financiameasures of intellectual capital. This reportcalled a "navigator" for two reasons. First,

an organization in managing intellectual asintended to guide people through a compremeasures that represent the true resourcesfuture potentialof an organization.

Skandia, a Swedish insurance and financial services company, published a supplement to i ts 1994 annual report eCapital in Skandia" (Skandia, 1995). Leif Edvinsson is the corporate director of i

linking past, present, future

2

nd

Generation performance measuremFrameworks

Individual stock measures (Pike/ Roos, 2001).

Strategy maps (Kaplan and Norton, 2000)

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Success and risk maps (And y Neely and colleagues, 20

IC-Navigator model (Roos et al., 1997; Chatzkel, 2002)

Strategy Map / Strategic Linkage M

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Strategy Map / Strategic Linkage M

Strategic Linkage Model

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Strategic Linkage ModelThe measurable strategic objectives

organized in a cause and effect diagram to

capture management thinking on therelationships of the medium term activities

and outcomes

Strategic

To identmust be

interim

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Kaplan, R. S./Norto n, D. P., The Strategy Focused Organization: How Balanced Scorecard CNew Business Envi

requireds

Success Map

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Success Map

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Neely, A., Marr, B., Roos, G., PiTowards the third generation of performance measurement, Contr

3rd

Generation performancemeasurement Frameworks

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pmeasurement Frameworks

2020

Destination statement

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2020

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Strategic Linkag

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Balanced scorecard measures and ta

To track whether objectives are being achieved

To drive the right management actions

Destination

A clearly articulated and quantified long-range description of the desire

business at a particular point in time; Typically this is focused on how will look after 3-5 years

The document describes how things are at that time, rather than the thdone between now and then to arrive at that end point.

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DestinationStatement

To build management consensusTo articulate the intended results of implementing strategy

PART-IIBalanced Supply Chain Scoreca

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Balanced Supply Chain Scoreca

Supply Chain Performance Measu(in various categories)

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pp y (in various categories)

Order Fill Rate Line Item Fill Rate

Quantity Fill Rate

Backorders/stockouts

Customer satisfaction

% Resolution on first customer call

Customer returns Order track and trace performance

C t di t

Customer Service Measures

Total landed cost Point of consumption

availability

Total supply chain inv

Retail shelf display

Channel inventories

EDI transactions

Percent of demand/s

Percent of customers

Extended Enterpris

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Customer disputes

Order entry accuracy

Order entry times Forecast accuracy Percent perfect orders

New product time-to-market New product time-to-first make Planning process cycle time Schedule changes

Process, Cross-Functional Measures

Percent of customers

Percent of suppliers

forecast

Supplier inventories

Internet activity to su

Percent automated te

Product quality WIP inventories Adherence-to-schedule Yields Cost per unit produced Setups/Changeovers Setup/Changeover costs Unplanned stockroom issues Bill-of-materials accuracy

Routing accuracy Plant space utilization Line breakdowns

Manufacturing Related Measures

Finished goods inventory turns Finished goods inventory days of sup On-time delivery Lines picked/hour Damaged shipments Inventory accuracy Pick accuracy Logistics cost Shipment accuracy On-time shipment

Delivery times Warehouse space utilization End-of-life inventory

Logistics Related M

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Line breakdowns Plant utilization Warranty costs Source-to-make cycle time Percent scrap/rework Material usage variance Overtime usage

Production cycle time Manufacturing productivity Master schedule stability

End of life inventory Obsolete inventory Inventory shrinkage Cost of carrying inventory Documentation accuracy Transportation costs Warehousing costs Container utilization Truck cube utilization In-transit inventories Premium freight charges Warehouse receipts

Cash flow Income

Revenues

Return on capital employed

Cash-to-cash cycle

Return on investment

Revenue per employee

Invoice errors

R t t

Administration/Financial Measures

Market share Percent of sales fro

to-market

Percent of products

80% of sales

Repeat versus new

Marketing Related

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Return on assets

Material inventories

Supplier delivery performance

Material/component quality

Material stockouts Unit purchase costs

Material acquisition costs

Expediting activities

Purchasing Related Measures

APICS trained pers Patents awarded

Employee turnover

Number of employe

Other Measures

Integrated Supply Chain Balanced ScorFramework

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a e o

CUSTOMER PERSPECTIVE

Goals

Customer view of Product

Of timeliness

Of flexibility

Customer value

Measures

No. of customer contact points

Relative Customer order response time

Customer perception of flexible response

Customer value ratio

INNOVATION AND LEARNING PER

Goals

FINANCIAL PERSPECTIVE

Goals

Profit Margins

Cash Flow

Revenue Growth

Return on assets

Measures

Profit margin by Supply chain partners

Cash to cash cycle

Customer Growth and profitability

Return on SC assets

Customer Benefits

Financial Benefits

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INTERNAL BUSINESS PERSPECTIVE

Goals

Waste Reduction

Time Compression

Flexible Response

Unit cost reduction

Measures

SC cost of Ownership

SC cycle efficiency

No. of Choices / Av response time% of SC target costs Achieved

Goals

Product Innovation

Partnership Mgmt.

Information Flows

Threats and Subsitutes

Product Final

Product categ

Shared data s

Performance technologies

SCM Goals

SCM Impr

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purchasing management and

sourcing

Supply

Chapter-05

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p g g

Strategic Sourcing

Prof.

Operations

Management Developmenmks

[email protected]


Sourcing decisions and purchasing activities serve to link a coits upstream supply chain partners

Sourcing decisions

High level, often strategic decisions regarding which productswill be provided internallyand which will be provided by exteh i t

Focus

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chain partners

Purchasing

The activities associated with identifying needs, locating asuppliers, negotiating terms, and following up to ensuperformance.

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Sourcing policy- determining dependency on suppliers and designing plans to reduce th

Direct versus indirect buying- determining the (possible) cost benefits of buying fromdistributors, or buying directly from the manufacturer.

Make-or-buy analysis- analysis of savings opportunities by eliminating particular produbuying the required products from third parties; buy or lease may be considered as an alternat

Integration between purchasing and other functional areas- plans aimed atproblems between purchasing and materials management, pure engineering, and between purcadministration or treasury

Setting up a purchasing information and control system l i f h

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Setting up a purchasing information and control system- analysis of purchaneeds and design of an automation plan; possibilities of linking this system with existing inforother functional areas.

Centralized or decentralized purchasing- balancing cost benefits and strategic coto a centralized or decentralized organization of purchasing

Standardization- determining possibilities to achieve standardization in order to reduce pvariety; balancing savings and risks.

Supplier Development Through Procureme

Supplier PurcMarketing Initiative

Purchasing Response

The Marketing Viewpoint

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The Procurement Viewpoint

Supplier PurcProcurement Initiative

Marketing Response

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Volume consolidation / Supply baseoptimization Buy

Supplier-buyer integration / Linked costminimization Bu

Value management / Optimization Consum

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Sourcing Pathways (Source: Mercer Mgmt Consu

Sales synergy Se

Typical Firms Benchmark Firms

Administrative costs aspercent of purchases

3.3% 0.8%

Lead time (weeks)15 8

Time spent in placingorder

42 minutes 15 minutes

Percentage of latedeliveries

33% 2%

P t f j t d

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Sourcing Pathways (Source: Mercer Mgmt Consu

Percentage of rejectedmaterial

1.5% .0001%

Number of shortagesper year

400 4

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Six stage purchasing developmental mod

1. Transaction orientation serve the factory

2. Commercial orientation lowest unit price

3. Coordinated purchasing saving through synerg

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4. Internal integration: cross-functional purchasing, total cost

5. External integration supply-chain optimiza

6. Value chain integration total customer satisfac

Effectiveness/Cumulative

savings

Transactionalorientation

Commercialorientation

Purchasingco ordination

Internalintegration

ExternalIntegration

Vin

Publicutilities

FinancialServices

Pharma

Food andbeverages

telecommu-nication

automotiv

Computer/PCs

Consumerelectronics

CROSS-FUNCTIONADECENTREALIZED

FUNCTIONAL FOCUS

CENTRE-LED

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orientation orientation co-ordination integration Integration in

focus

Activities

Dilemmas

serve thefactory

ClericalOrder processing

Initial purchasingControl ofpurchasingexpenditure

Reduce cost

CommercialTenderingNegotiatingApr supplier listsSupplier basemanagement

Savings throughsynergy

CommercialContractingGlobal sourcing

ContractmanagementEthics

Total Cost ofownership

Cross functionalbuying teamsSystems integrationVendor rating etc.Communicationand informationinfrastructure

Supply chainoptimization

OutsourcingEDI/InternetE-CommerceCost modelsSocialresistance

T

CCS

GIH

Procurement

Process

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Supplier identification

and evaluation

Description

Needs identification

Is th ere a preferred sup pl ierNo

Yes

The Purchasing Process

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Invoice clearance & payments

Records maintenance

Receipt and inspection

Follow up and expediting

Purchase order preparation

The Purchasing ProcessNeeds Identification

Needs identification

Purchase requisitionAn internal document completed by a user that in

purchasing of a specific need

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Reorder point systemA method used to initiate the purchase of routine

Typically, each item has a predetermined order po

quantity

The Purchasing ProcessDescription

Description by market grade/industry standard

DescriptionThe communication of a users neepotential suppliers in the most effiaccurate way possible

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Description by market grade/industry standard

Description by brand

Description by specification

Description by performance characteristics Description by prototypes or samples

The Purchasing Process

Supplier Identification and Evaluation - I

Supplier identificationand evaluation

The complexity of the prod

or service increases

The amount of money that i

The amount of effort increase

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The amount of money that i

committed increases

The length of the proposed

buyer-supplier relationshipincreases

Supplier identificationand evaluation

Process and design capabiliti

Management capability Financial condition and cost s

Criteria for supplierassessment:

The Purchasing ProcessSupplier Identification and Evaluation - II

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Planning and control systems

Environmental regulation com

Longer-term relationship pote

Supplier selection

Preferred supplier

Competitive bidding

Negotiation

The Purchasing ProcessSupplier Selection - I

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Supplier selection

Preferred supplierA supplier that has demonstrated performance capabilities through

purchase contracts and therefore preference during the supplier sel

The Purchasing ProcessSupplier Selection - II

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process

Supplier selection The buying firm can provide qualified

with clear descriptions of the items or Volume is high enough to justify the c

effort

Competitive bidding is moeffective when:

The Purchasing ProcessSupplier Selection - III

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The firm does not have a preferred su

Supplier selection The item is new or technically complex

with only vague specifications

The purchase requires agreement about a wideperformance factors

Th li t ti i t i th

Negotiation is most effecti

The Purchasing ProcessSupplier Selection - IV

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The supplier must participate in the

development effort

The supplier cannot determine risks

and costs without input from the buyer

Purchase order preparation

Receipt and inspection

Follow-up and expediting

Purchase order preparation74% of firms currently have electronic data

with some part of their supply base

Follow-up and expediting Receipt and inspection

I i l d t

The Purchasing ProcessThe Order Cycle

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Records maintenance

Invoice clearing and payment Invoice clearance and payment

Records maintenance

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ProcurementProcess

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StraightRebuy

Buyer reorders an existing productor service from the list of acceptablesuppliers.

ModifiedRebuy

Users, influencers, or deciders in thebuying center want to change theproduct specifications, price,

delivery schedule, or supplier.

New Buyfirst-time buyer , greater risks,buying center is enlarged to includeall who have a stake in the new buy.

r ljics supply matrix

Suppl

yRisk

High Bottleneck items (Distinctives)*Suppliers technology critical*Difficult to substitute*Unique requirements*Engineering Items

Ensure Supply

Non-critical items (Generics)*Many suppliers available*Easy-to-find substitute products

Strategic items (C*Unique specifications*Suppliers technology cri*Difficult to substitute*Unique specifications

Form long-term p

Leverage items (comm*Large volume purchases*can find substitutes, many suppl

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Profit impactLow

Easy to find substitute products*Office Items, MRO

Simplify and Automate

*Basic Production, Packaging item*Logistics Services

exploit purchasing power & mLow

Typology of Buying Decision

ommerc

ial

ncertainty

Low

PurchasingDepartment

Dominant

EngineeringDominant

C F ti

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CoU

n

Product ComplexityLow

Finance And AdmnDominant

Cross FunctionDecision

High

Supplier BASE

Single vs MultipleCentralized vs Decentralized

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Single sourcingThe buying firm depends on a single company for all or nearly all of an item or

Multiple sourcingThe buying firm shares its business across multiple suppliers

Cross sourcingUsing a single supplier for a certain part or service and another supplier with t

biliti f i il t

Sourcing Strategies

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capabilities for a similar part

Dual sourcingUsing two suppliers for the same purchased product or service

Trends in Purchasing Management - I

Contract length Competitive bidding,reviewed annually orsemiannually

Long-term contracts (>performance improvem

Purchaseconsolidation

Products and servicespurchased by individualbusiness units

Purchases consolidatebusiness units to leveraand purchasing efforts

Area of Traditionally In the FuturePurchasing

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p g

Number ofsuppliers

Suppliers switched often,with many suppliers for

each purchased item

Firms more likely to sindual-source in order to

performance and reduc

Trends in Purchasing Management - II

Location ofsuppliers

Primarily domestic or evenlocal

Global sourcing to asuppliers in the worl

Topmanagementsperception ofpurchasing

Purchasing seen as anuisance or non-value addedactivity

Purchasing sees as harness suppliers c

Area of Traditionally In the FuturePurchasing

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purchasing

Lscm Jun 2014

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